HomeMy WebLinkAbout01101972 Item #H-6gJAN 1✓019712
BY the CITY COUNCIL CITY OF NEWPORT BEACH
CITY OF "W00147 BEACH Office of
CITY ATTORNEY,
H6�,�''
January 10, 1972 "
To: The Honorable Mayor and
Members of the City Council
From- City Attorney
Subject: Requirement of City Council Consent
for the Sale of Balboa Bay Club Stock
I have prepared this memorandum for the Council in order to clear
up some possible confusion with regard to certain recent refinanc-
ing and stock negotiations conducted by the Balboa Bay Club.
On.December 13, 1971, the City Council consented to the assignment
of the Balboa Bay Club's lease and improvements located on the
leased property to U. S. Financial Corporation as security for
refinancing the Club for the purpose of paying off existing debts
and to expand the.Club facilities.
On December 29, 1971, 100 percent of the common stock and 100 per-
cent of the junior preferred stock of the Balboa Bay Chub was sold
to International Bay Clubs Inc, which is owned by W. D. Ray of New-
port Beach.and U. S. Financial of San Diego. The only remaining
class of stock, a senior preferred issue, owned by All -State Insur-
ance Company, was not purchased or redeemed and remains outstanding.
The Bay Club's lease and /or any interest therein, was not assigned
or sold and remains the property of the Balboa Bay Club which operates
as a wholly owned subsidiary of International Bay Clubs Inc. .Mr.
Jack.Wrather is stepping down as Chairman of the Board and President,
but will remain.as a member of the Board of Governors. Mr. William
D: Ray will assume the.post of Chairman of the Board, and Mr. Richard
S. Stevens becomes President and chief operating officer.
Negotiations contemplated under the consent and resolution granted
the Balboa Bay Club by the City for anticipated refinancing are still
under way and when completed, the documents will be submitted to this
office for review and final approval as required by the consent.
With this information as background, the question arises as to whether
or not the consent of the City was first required before the sale of
Re: Balboa Bay Club -2- January 10, 1972
Stock Sale
the Balboa Bay Club stock to International Bay Clubs Inc. The lease,
dated March 24, 1948, between the City and the Balboa Bay Club pro-
vides, on page 13 under the paragraph entitled Assignment of Lease,
"The. Club shall not assign this lease or any interest
therein without the written consent of the City first had and ob-
tained . . .".
Under a literal interpretation of this language, prior City consent
would not be required for a transfer of stock. This apparent loop-
hole in the terms of the lease was recognized and an attempt was made
to change the language to provide for City consent to stock trans -
fersin the proposed amended Bay Club lease which was defeated at the
special election held January 13, 1970.
Even though the lease apparently requires City consent only when there
is an assignment of a leasehold interest, there still remains a con-
sideration if consent should not in fact be required in an instance
such as this where a stock transfer in form may not be an assignment,
but in substance is tantamount to an assignment of the lease. The
California District Court in the case of Ser -Bye Corp. vs. C. P. G.
Markets, 78 Cal App 2d 915 (1947) held that a covenant in a lease that
a corporate lessee shall not "assign the leasehold estate" without the
lessor's consent, refers to the lease as an entirety and not merely
to shares of stock in the corporation, where the lease does not ex-
press in clear and unequivocal language that the sale and transfer
by one or more stockholders to other persons of their shares of stock
in the corporation is to be deemed as an assignment, or an attempted
assignment of the lease itself.
Based on the foregoing, it is the opinion of this office that under
the terms of the lease between the City of Newport Beach and the Balboa
Bay Club, prior City Council consent was not required for the transfer
of the Balboa Bay Club stock to International Bay Clubs Inc.
DON dm
cc. City Clerk
City Manager